Refinance Free Credit

As legislators and regulators look to both Fannie Mae (FNM: 27.59, -1.11%) and Freddie Mac (FRE: 25.73, -2.13%) to prop up an ailing U.S. housing and mortgage market, both GSEs ramped up their portfolio purchases dramatically in April as wide MBS spreads in March led each to bulk up on holdings of their own securities.

Freddie Mac saw its retained portfolio soar to a record $737.54 billion in April — even making the rare run past sister GSE Fannie Mae, which saw its portfolio grow to $728.41 billion.

Freddie has been on a veritable tear in mortgage purchases during 2008, buying more than $100 billion during the first four months of the year; the GSE’s net portfolio commitments hit $43.49 billion in April alone, with retained purchases increasing to $36.89 billion from $18.6 billion in March. Fannie’s net retained commitments rose dramatically as well, to $30.66 billion — but not enough to keep up with the torrid pace being set by Freddie Mac.

Most of the purchases are in the form of the agencies’ own securities, however, and not in the form of mortgages or so-called private-party MBS — so while the GSEs are aiding liquidity in the conforming market, they’re not exactly jumping in and soaking up risk in other sectors of the mortgage market. Wide agency MBS spreads in March created an attractive purchasing environment for both GSEs, as well, sources told Housing Wire on Friday.

Freddie Mac, for example, continued to run off its portfolio of private-party MBS, which fell to $218.96 billion in April from $244.62 billion one year ago; purchases of its own securities led to a jump of $28.35 billion in Freddie-backed MBS between March and April alone.

Despite bulking up their portfolio holdings, both Fannie and Freddie are continuing to see credit quality worsen. Fannie Mae reported that serious delinquency rates in its single-family mortgage portfolio rose to 1.15 percent in April, up 5 basis points from one month ago and nearly double year-ago levels. Freddie, in comparison, saw severe delinquencies rise to 0.77 percent, up 3 basis points and just under doubling year-ago totals.

For more information, visit http://www.fanniemae.com and http://www.freddiemac.com.

Disclosure: The author held no positions in FNM or FRE when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

National City Corp.’s (NCC: 5.65, -2.75%) mortgage banking unit will pay the United States $4.6 million to settle allegations that it had improperly submitted 58 late endorsement loans for insurance coverage, the U.S. Department of Justice said late Thursday.

National City has “direct endorsement” authority to underwrite HUD-insured mortgage loans and submit them to HUD for insurance endorsement. Direct endorsement is a mechanism that allows a pre-approved lender to loan a low or moderate income borrower money for a mortgage, and protects that lender against loss in case of default.

HUD regulations require that the lender make certain certifications to the Federal Housing Administration when it is submitting loans for insurance coverage more than 60 days from the loan closing, referred to as “late endorsement loans.”

The government had alleged that National City improperly submitted 58 late endorsement loans for FHA insurance coverage that were 30 days or more in arrears, a claim the company has denied.

“HUD’s vital mortgage insurance programs assist lenders that make the American dream of home ownership accessible to more people, but lenders must follow HUD’s rules and be held accountable if they knowingly submit loans that are not eligible for insurance,” said Gregory G. Katsas, acting Assistant Attorney General for the Justice Department’s Civil Division, in a press statement.

Disclosure: The author held no positions in NCC when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

Freddie Mac (FRE: 25.79, -1.90%) has suspended its approval of Triad Guaranty Inc. (TGIC: 2.09, -6.28%) as a private mortgage insurer, but the North Carolina-based MI provider will continue to write policies on Freddie Mac mortgage pending an appeal, the company said Thursday afternoon in an announcement.

Saying it would “vigorously pursue” the appeals process, already underway, Triad said the move by Freddie Mac “should not have any immediate adverse impact on Triad’s ability to write new mortgage insurance.”

Triad posted a net loss of $150 million during the first quarter as credit costs tied to its insurance of properties in so-called “distressed mortgages” pulled the troubled insurer further into the red. The insurer is actively engaged in discussions with Lightyear Capital LLC, a New York-based private equity firm, to create a new monoline mortgage insurance company and move its existing insurance operations into run-off.

“Freddie Mac and Fannie Mae are both continuing to accept new insurance written or committed by Triad,” company CEO Mark Tonneson said. “We welcome the opportunity to provide both the GSEs and our regulators with more details concerning our anticipated voluntary run-off plan and the benefits we believe can be achieved by completing the proposed transaction with Lightyear.”

For more information, visit http://www.triadguaranty.com.

Disclosure: The author held no positions in TGIC or FRE when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

A hearing at the House Committee on Small Business on Thursday served as the latest platform for industry groups to voice their concerns over proposed changes to the Real Estate Settlement and Procedures Act, with representatives from both the National Association of Realtors and the American Land Title Association taking turns bashing the proposed reform measure as “confusing” and “costly” for consumers.

The U.S. Department of Housing and Urban Development recently extended its comment period for the proposed reform measures, bowing to both Congressional as well as industry pressure. Comments on the proposed changes may be submitted through June 12.

HUD’s current reform proposal would expand its authority to enforce RESPA’s provisions, and would force brokers to disclose any yield spread premium compensation upfront.

“We believe that RESPA reform cannot be resolved in one sweeping change without considering and appreciating the many moving parts of a residential real estate transaction,” ALTA president Gary Kermott said in testimony to key members of the House of Representatives.

Among ALTA’s concerns are changes to RESPA procedures that it argues will result in more confusion, red tape and cost for people both buying and selling a home.

Kermott pointed to the imposition of responsibility on the closing agent to read and interpret the closing script on behalf of the borrowers as one such example of unneeded red tape, which he said “will increase costs for both sellers and borrowers.”

Adam Cockey Jr., chair of the National Association of Realtors’ Real Estate Services Forum, was more blunt. He argued that the current reform proposal “tips the balance in favor of the largest financial industry players, opens the door to legal challenges, and does little if anything to benefit consumers.” The NAR has called for the RESPA reform proposal to be withdrawn altogether.

No consumers, however, testified in front of the House panel. Others speaking at the hearing included HUD RESPA director Ivy Jackson; the Mortgage Banker Association’s chairman-elect David Kittle; Marc Savitt, president-elect of the National Association of Mortgage Brokers; and Julia Gordon, policy counsel for the Center for Responsible Lending.

Kittle’s testimony focused on differences between HUD’s RESPA proposal and efforts by officials at the Federal Reserve to reform Truth in Lending Act policies.

“It is clear that there are considerable variations between the Board and HUD’s approaches to reform,” Kittle said. One such example is how to handle disclosures of broker’s fees; Kittle characterized the Fed’s proposal in this area as “a clear agreement,” while calling HUD’s proposal within RESPA guidlienes as “far from direct.”

Kittle suggested that HUD officials work with officials at the Federal Reserve, rather than independently finalizing its own set of rules.

Full video of the RESPA is available by clicking here.

On Monday, Thornburg Mortgage (TMA: 0.7004, -5.33%) admitted that it will be June 2 before it can report first quarter results. The company said was unable to file its Form 10-Q because it requires additional time to prep its valuation analysis for a recent capital raise (completed at the end of March), and to also determine just how to account for that transaction. The company needs time to figure out how to properly account for the override agreement the company entered into with certain reverse repurchase agreement, securities lending and auction swap agreement counterparties on March 17 — that agreement kept the ultra-jumbo lender from meeting an untimely end in the first quarter.

Thornburg currently anticipates it “will report a substantial net loss” when it does report for Q1; a large portion of the loss will come from declines in the fair value of its mortgage-backed securities portfolio.

Impac’s Implosion
Former Alt-A giant Impac Mortgage Holdings (IMH: 1.19, +0.85%) finally reported its full-year 2007 results this week, as HW readers know, turning in a stunning $2 billion loss after taking a $1.4 billion provision for possible loan losses. Impac also reported a taxable loss of $1.79 a share in 2007, effectively eliminating any dividend obligation for months to come.

Looking at prospects for the future, what wasn’t heavily covered elsewhere is that Impac is in negotiations to convert its remaining reverse repurchase line — with an outstanding balance of $318.7 million at the end of Q4 — into a note. If it can do so, reducing the uncertainty surrounding the line, and if it can settle the repurchase reserves in discontinued operations, Impac thinks it will be able to meet its liquidity needs from cash flows generated by its long-term mortgage portfolio and master servicing fees. Stay tuned.

Debt Deals Getting Done
A couple of big debt deals got done the week. iStar Financial (SFI: 19.86, -2.84%) agreed to sell $750 million in unsecured 8.625 percent senior notes, and also obtained a $960 million interest-only first mortgage financing from GE Real Estate. The loan is secured by 34 single-tenant office, R&D and industrial properties in 12 states — a stark departure from iStar’s normal practice of using unsecured funding. Fitch Ratings has noted that if iStar begins to significantly encumber its net lease portfolio, the company could lose its investment grade rating. The REIT’s hand is likely forced here, however, because it needs to retire the debt it assumed to complete an earlier Fremont Investment & Loan acquisition (iStar purchased all of Fremont’s commercial loan business for $1.9 billion in May of last year).

NorthStar Realty Finance (NRF: 9.49, -1.56%) also went to the capital markets this week, completing a $80 million private offering of 11.5 percent unsecured notes. Although the rate on the notes seems high, NorthStar’s common equity is yielding 14.2 percent, so the capital was relatively cheap in comparison. NorthStar plans to use the money to expand its portfolio.

IPO Deals Not Getting Done
Following the less-than-impressive debut of American Capital Agency (AGNC: 19.08, +0.42%) last week, MFResidential Investments, a mortgage REIT intending to invest primarily in residential mortgage backed securities and residential mortgage loans, postponed its IPO on Wednesday. The company, which is sponsored by agency mREIT MFA Mortgage (MFA: 7.08, -2.34%), had planned to offer 16.7 million shares at an expected price of $15. There was no word on how long the IPO will be delayed.

Next week, we’ll update you on the MFResidential IPO–and stay tuned to see just how horrible a quarter Thornburg had. I don’t expect it to be pretty.

Editor’s note: Patrick Harden is a Certified Public Accountant with three years of experience in auditing publicly-traded real estate investment trusts. For the past two years, he has been involved in the mortgage finance industry as a member of the financial reporting group at a publicly-traded mortgage bank. His column covering mortgage REITs runs every Friday.

Disclosure: The author was long NRF, and held no other relevant positions, when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

Mounting losses in home equity loans and lines of credit have officials at the Office of the Comptroller of the Currency taking notice, with OCC chief John Dugan warning yesterday that banks need to build reserves for losses in the area and suggesting that many need to “return to the stronger underwriting standards of past years.”

The call for tighter underwriting standards from OCC officials would seem to contrast pretty sharply with the relaxing of underwriting standards now quickly taking place at Fannie Mae (FNM: 27.72, -0.65%) and Freddie Mac (FRE: 25.79, -1.90%), both of whom this week nixed long standing so-called declining market policies in the face of consumer criticism.

Home equity loans and lines of credit grew dramatically in recent years, more than doubling to $1.1 trillion in originations since 2002. In part, Dugan suggested, growth in second liens was tied to rapid appreciation in house prices, the tax deductibility feature of home equity loans, and low interest rates.

“But another contributing factor was perhaps not so obvious: liberalized underwriting standards,” he said Thursday afternoon in a speech to the Financial Services Roundtable’s Housing Policy Council. “These relaxed standards helped more people to qualify for loans, and more people to qualify for significantly larger loans.”

As the housing bust has rolled on, losses in second liens have begun to pile up. While losses on HEL/HELOCs have traditionally run at about 20 basis points, or two tenths of a percent of loans, they shot up to nearly 1 percent in the fourth quarter of 2007, and to 1.73 percent in the first three months of 2008, the OCC said.

Losses on all home equity loans, including HELOCs and junior home equity liens, rose from $273 million in the first quarter of 2007 to almost $2.4 billion in the first three months of 2008 – a nine-fold increase. Not surprisingly, some of the nation’s largest lenders are now suggesting that losses could continue to skyrocket; Bank of America Corp.’s (BAC: 33.94, -2.27%) recent guidance here is one such example.

Obviously, building appropriate reserves will be critical to weathering the storm, Dugan said; the OCC head suggested that examiners will be focusing in on this area going forward.

“At some banks, the portion of reserves attributable to home equity loans just barely covers 2007 chargeoffs,” he said. “With losses accelerating, those reserves are simply not going to be adequate, and that’s why our examiners are encouraging more robust portfolio analysis and loss reserve levels.”

That, along with more sane underwriting, Dugan said, will be the key to keeping the HELOC problem from spiraling out of control.

For more information, visit http://www.occ.gov.

Disclosure: The author held no positions in any of the publicly-traded firms mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

Lewis Ranieri, the mortgage-backed bond market pioneer that made headlines earlier this week for his involvement in troubled Franklin Bank Corp., is the latest to jump into the distressed mortgage space with news Friday that a fund he manages has been seeking to raise $1 billion in fresh capital.

Selene Residential Mortgage Opportunity Fund LP, which counts Ranieri among its managing partners, has raised just $151 million so from investors in New York, Ohio and Pennsylvania as of April 15, according to a report published by Bloomberg News.

Further research by Housing Wire shows that the $28 billion South Carolina Retirement System, a pension fund, also invested $200 million with Selene earlier this month. The fund is one of the few U.S. pensions with permission to invest in alternative funds.

From Bloomberg:

“Our plan is to raise $1 billion and buy delinquent mortgages that we will recast and refinance and try to keep the borrower in the house without a foreclosure,” said David Creamer, a Selene managing partner and former GMAC executive, in an interview.

Interestingly, Ranieri seems, if anything, to be late to the distressed mortgage asset party. Other large players have been aggressively attempting to stake out positions in distressed mortgages since earlier in the first quarter of this year.

BlackRock Inc. (BLK: 208.84, +2.69%), the biggest publicly traded U.S. asset manager, said in March it was backing a new company called Private National Mortgage Acceptance Co. LLC, also known as PennyMac, that will buy mortgages at a discount and look to make money in the so-called scratch-and-dent business. PennyMac has a $2 billion war chest to step in and start buying, and will bankroll its own in-house servicing platform; BlackRock also recently negotiated a deal to snap up $15 billion in mortgages from Swiss bank UBS AG (UBS: 29.33, -1.94%).

Beyond BlackRock’s move, Marathon Asset Management, LLC, a global investment manager with $10.6 billion under management and over $20 billion in assets, is also buying up distressed mortgages and is also pumping the mortgages it buys to its own captive servicing operation, Phoenix-based Marix Servicing, LLC. The company has said in recent weeks that it has been buying well over a billion dollars in bad mortgages for the platform to service.

Selene snapped up the mortgage servicing platform of bankrupt Aegis Mortgage Co., a former Cerberus Capital Management LLC venture that went belly-up in August last year.

Disclosure: The author held no positions in any of the publicly-traded firms mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

Does Lawrence Yun, the NAR chief economist, have a clue? He might just yet. Yun called the new report on the glut of unsold homes ‘uncomfortably high’ in a resignation that the housing market just isn’t in very good shape no matter which way you cut it.

His comment was in response to the finding that unsold home inventory has risen to a 23-year high even as home prices have declined across the country. The inventory now represents nearly a year’s worth of single-family homes on the market.

More on the unsold home inventory on the market:

The inventory of unsold homes jumped 10.5% to 4.55 million, an “uncomfortably high” level, said Lawrence Yun, chief economist for the real estate trade group.

Inventories represented an 11.2 month supply at the April sales pace, the highest since the records began in 1999.

The inventory figures are not seasonally adjusted. Typically, inventories rise about 7% in April, as the spring and summer sales season kicks into high gear.

For single-family homes alone, the inventory rose to 10.7 months’ supply, the highest since 1985. For condos, the inventory of 14.2 months is the highest ever.

Sales of single-family homes fell 0.5% in April to a 4.34 million annual pace, down 16% in the past year and 32% from the peak. Condo sales dropped 5.2% in April to a 550,000 annual pace.

Several markets that have seen price declines of 20% or so are turning around, Yun said, pointing to San Diego, Detroit and Fort Myers, Fla.

Share This

Yield Spread Premium or YSP is the best kept and most scandalous mortgage secret you’ll encounter as a homeowner. YSP is the premium that your lender pays to the mortgage broker for selling you a higher than necessary mortgage interest rate. The more you overpay when refinancing your ...

Gaps in the regulatory process and structure enabled much of the subprime mortgage crisis to grip financial markets with force in the back half of 2007, Securities and Exchange Commission chairman Christopher Cox said in an interview with the Financial Times on Friday.

Saying that the SEC is parsing “regulatory lessons” from the market mess that has yet to resolve itself, Cox suggested that stronger oversight of underwriting and issuance standards would be needed going forward:

“Subprime only leached into the securities markets after it was already a horrible problem. There was complete breakdown in lending standards, a complete breakdown, one can infer from that fact, in supervisory standards for lending or at least the application of those standards.

“We’ve also found other regulatory gaps, not just statutory regulatory gaps for investment banks, but also for mortgage brokers, and we have discovered a host of perverse incentives in the securitisation process, only a small portion of which are the responsibility of securities regulators.”

His remarks come ahead of a global regulatory conference this weekend, the International Organisation of Securities Commissions. The IOSC is expected to release new research this weekend on the subprime mess and financial reporting standards, the FT reported.

For its part, the SEC is set to unveil new regulations next month, Cox said.